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Mending Lending: Trends & Best Practices to Improve Loan Processing

Deb Miller, Director of Industry Marketing @DebsG360

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Today’s Discussion

Best Practices in Operational

Excellence

Industry Trends in Lending

Executive Survey Says…

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Complex products & customer relationships

Multiple brands

Margins shrinking

rising risk

Consumer fears escalatingCurrency values fluctuate

Multiple sophisticated channels Social

Legacy systems

Information and paper overloadSilo’ed business structure

Regulatory changes M&A

What’s Impacting the Market?Lenders are facing significant challenges and increasing complexity…

Mobile

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Loan Processing Performance

Time

Com

plex

ity

Drivers of complexity: Regulation Internal processes Number of players/actors Number of channels Level of integration (a

double-edged sword) Existing IT architecture Existing application

portfolio Number of business

partners

Source: CEB TowerGroup

Checking account

Commercial Client

Corporate Clients

Consumer Loan

Mortgage Loan

Complexity impacts cost, efficiency and cycle times…

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The Regulatory Fog Continues

Source: DavisPolk; Dodd-Frank Act Rulemaking Progress in Select Categories (March 1, 2012)

ABS Offerings

Credit Rating Agencies

Mortgage Reforms

Banking Regulations

Consumer Protection

Derivatives

0 20 40 60 80 100

2

3

3

4

24

36

12

14

36

44

4

13

3

3

37

4

36

2

Finalized

Missed Deadline: Proposed

Missed Deadline: Not Proposed

Future: Proposed

Future: Not Proposed14

22

43

44

95

63

Category Number of Rules Only 26% of these

281 rules are final

38% of rules missed deadlines

Consumer protection rules are on time

The “best” of mortgage reform is yet to come

Compliance change is a long-term issue; so should FSI strategy, relying on automation for cost efficiency

Dodd-Frank hurdles will unfold throughout the decade…

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Loan OriginationCosts Remain High and are a Concern…

U.S. Origination Cost Per Loan

2007 2011 2007 2011

Source: Federal Reserve Bank of New York; CEB TowerGroup.Note: Mortgage origination costs per loan are scaled at 10 times that of other costs to fit on graph.

Automobile

2007 2011

$5,11840% increase

MortgageHome Equity

15% increase

7.5% increase

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Summary: Lending Institutions Face Strong Market Forces

Uneven growth prospects across loan products and country markets

Impact of sovereign/banking crises on lending

Regulatory pressure on revenues and process

Declining consumer employment/income growth

Ongoing legal, delinquency and credit risks

Trust and high customer expectationsSource: CEB TowerGroup.

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Lending Institutions Are Using Technology to Respond to their Challenges

Click icon to add chartTop 10 Technology Initiatives for Consumer Lending (2012)

Compliance technology to reduce regulatory risks

Integrated credit, collateral, and fraud risk assessment to manage risk and revenue goals

Redefining and restructuring core processing IT and operations

Data management and foundation alignment for business intelligence

Enterprise-wide customer-centric decisioning - “next best action”)

Enterprise content and process management for cost takeout and efficient processing

Customer lifetime profitability measurement and analysis

Optimized product bundling, pricing, and positioning

IT and business process outsourcing for strategic cost management

Channel experience alignment and personalization

Source: CEB TowerGroup.

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Today’s Discussion

Best Practices in Operational

Excellence

Industry Trends in Lending

Executive Survey Says…

10

Survey Results:Trends in Optimizing Loan Processing

May 2012 Peer SurveyConducted by GatePoint Research

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It’s taking 45 days

and $3,000 to process

a loan from point of

sale through post-

closing !

Why do a survey?Get a snapshot of the challenges and the responses…

BPM

Optimization of “broken” processes is driving BPM

adoption in Financial Services

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Loan Operations

14%

Branch Operations

4%

OtherFunctions

31%

Line of Business

27%

Information Technology

24%

Who participated in the survey?

87% of survey responders are VP Level or above

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Survey Demographics: Institutions

Community Bank43%

Regional Bank31%

Global Bank12%

Credit Union

5%Other

9%

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Survey Question

Survey Question:How would you describe your current loan processing environment?

Performance

15 OpenText Confidential.

Loan performance environment

8% Excels

45%Adequate

12%Lagging the Competition

33%Smooth & Efficient

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Initiatives

Survey Question:Do you have a current initiative to improve loan processing workflow?

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Do you have a current initiative to upgrade or improve the loan processing workflow?

14%

39%

18%

10%

19%

67% Actively involved or expecting a near term

improvement initiative

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Survey Question:In what lending areas are you most concerned about current performance?

Concerns

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In what lending areas are you most concerned about current performance? (Check all that apply)

When considering current lending performance, responders worry most about commercial loans.

Student loans

Automotive

Personal lines of credit

Credit cardsMortgage

Small business loans

Commercial loans

5% 19%

22%30%

42%

47%

73%

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How did the survey responders rank priorities for improving loan processing?

Priorities

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Priority #5Improve

management visibility into the

process

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Priority #4Remove paper

from the process

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Priority #3Reduce the cost of

processing a loan

Loans 5¢

The Loan Processor

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Priority #2Reduce loan

process cycle time

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Priority #1Optimize and continuously improve processes across the business

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Today’s Discussion

Best Practices in Operational

Excellence

Industry Trends in Lending

Executive Survey Says…

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Leaders are effectively controlling cycle time and costs…

Commercial Mortgage Home Equity

Consumer Loan

Credit Cards

$1,210$1,007 $260 $85 $31

$3,405$1,936 $505 $168 $53

$5,600 $2,865 $750 $250 $75

Loan Origination Cost Benchmark

Low Avg High

Source: CEB TowerGroup and OpenText BPS

Best in class

IndustryAverage

Laggard

28 OpenText Confidential.

Cost of processing a loan > benchmark Cycle times are twice customer expectations Need to manage error rates & improve customer satisfaction

Problem

OpenTextSolution

BPM and Case Management to streamline the process and ensure compliance

Orchestrate and simplify loan processor validation and exception handling

Dashboards for real-time visibility

Case Study: A Major National Bank

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Improve Customer

Experience

Enable Efficiency and

ComplianceLine of sight to business goals

Focus on Achieving 3 Key Goals

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Loan Processing Solution

Loan Application

Processor reviews loan

Underwriter reviews loan

Book Loan

Notify Customer

Approved?

Rejected?

Loan Application is scanned and

indexed

Capture Docs

Other Docs

Customer Account Info

Automate Tasks

What is happening in my dept?

Have I balanced the workload?

Where is my loan application?

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Deliver Productivity Results For Key Personas

Support Staff LoanProcessors

non-value add

value-add

Proactively address issues

with Dashboards

Automate for data quality and process

compliance

Focus on enabling human

judgment

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Loan Processor Workbench

Integration to back end systems

List of actions to be

completed

Document viewer

Data specific to the

document and the case

Notes

Alerts (e.g. for missing required documents within the package)

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Thank you.

Learn more about OpenText Business Process Solutions

for Financial Services

www.OpenTextBPM.com

Participate in the Global Lending Survey today!

www.opentextbpm.com/lendingsurvey2012